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VAT registration isn’t optional once your turnover crosses a certain point, but plenty of businesses also choose to register early. Getting the timing right – and knowing what changes once you’re registered – avoids both penalties and unnecessary admin.
When registration becomes compulsory
You must register for VAT if your taxable turnover goes over £90,000 in any rolling 12-month period – not just your accounting or tax year, but any 12 consecutive months. You must also register if you expect to go over £90,000 in the next 30 days alone. It’s easy to miss the rolling test, because a business can be well under £90,000 for the year as a whole but still tip over it on a 12-month rolling basis partway through.
Once you’re liable to register, you have 30 days to tell HMRC, and your effective date of registration is the start of the second month after you went over the threshold (or the date you realised you’d exceed it, if that applies). Missing this deadline doesn’t just risk a penalty – you also become liable for VAT on all your sales from that effective date, whether or not you actually charged your customers VAT at the time.
- Up to 9 months late: 5% of the VAT owed
- 9 to 18 months late: 10% of the VAT owed
- Over 18 months late: 15% of the VAT owed
- Minimum penalty of £50 regardless of how small the amount owed
Registering voluntarily
You can register before you’re required to, and it’s often worth considering if you mostly sell to other VAT-registered businesses. Voluntary registration lets you reclaim VAT on your own purchases and costs, and can make a new or small business look more established to bigger clients. The trade-off is the extra admin: you’ll need to charge VAT on your sales, file returns (usually quarterly), and keep digital records under Making Tax Digital.
If most of your customers are the general public rather than VAT-registered businesses, voluntary registration usually makes less sense, since you can’t reclaim the VAT they effectively pay and your prices may need to rise by 20% to maintain the same margin.
Coming back out of VAT
If your taxable turnover drops below £88,000 and you expect it to stay there, you can apply to deregister. This isn’t automatic – you need to tell HMRC and satisfy them the drop is genuine and likely to continue, not a one-off quiet period.
What changes once you’re registered
- You must charge VAT on your taxable sales (usually 20%, though some goods and services are reduced-rated or zero-rated)
- You can reclaim VAT on most business purchases and expenses
- You need to keep digital VAT records and file returns through Making Tax Digital-compatible software – this has been mandatory for all VAT-registered businesses since April 2022, whatever your turnover
- Depending on your business, a VAT scheme such as the Flat Rate Scheme or Cash Accounting Scheme might simplify things or change how much VAT you actually pay – it’s worth checking which suits you rather than defaulting to standard VAT accounting
See our guide to Making Tax Digital for more on the digital record-keeping side of things.
If you’re not sure whether you need to register, or want help weighing up voluntary registration, get in touch – or see our pricing for VAT return support.
John is the founder of Summed Up Accountancy Services. He qualified as a Chartered Certified Accountant (ACCA) in 2006, worked in practice and then in industry as a Head of Finance, and set up Summed Up in 2019 to give growing businesses and directors straightforward, jargon-free advice.